Saturday, April 29, 2017

Another Anemic 1st Quarter GDP Report: The government's GDP estimate, released yesterday, will be revised twice in the coming months. The second estimate is scheduled for 5/26/17. News Release: Gross Domestic ProductThe government has had difficulty measuring 1st quarter GDP growth for decades. It has paid for stock investorsover the last several years to ignore the weak first quarter numbers. At some point, ignoring the weakness will prove to be the wrong decision, but it is impossible to say now whether the latest report is just another one that should be ignored by investors. The government's first estimate for real GDP growth in the 2017 first quarter was an anemic .7% annualized, down from the 2016 4th number of 2.1%. The consensus estimate was for .9% to 1.1% depending on who compiled the data. The Atlanta FED GDP model currently has the number at .2% as of 4/27/17, down from .5% as of 4/18/17. GDPNow - Federal Reserve Bank of AtlantaThe main concern about the data is that personal consumption expenditures increased at a .3% annualized rate. If that continues, then we are in trouble. I have been highlighting in several recent posts that consumer spending was at best lackluster notwithstanding the ebullient consumer survey data. As we all things about the future, time will tell soon enough whether this is the start of something bad or merely a short term blip that will reverse in the spring and summer. The positives in the report was a double digit increase in business spending. Using annualized numbers, investments in non-residential structures rose 22.1% and residential investment increased by 13.7%. Equipment investment rose at a 9.1% annualized rate. ("Nonresidential structures: Investment in nonresidential structures consists of new construction (including own-account production), improvements to existing structures, expenditures on new mobile structures, brokers' commissions on sales of structures, and net purchases of used structures by private businesses and by nonprofit institutions from government agencies. New construction includes hotels and motels and mining exploration, shafts, and wells. Nonresidential structures also includes equipment considered to be an integral part of a structure, such as plumbing, heating, and electrical systems." Glossary "N": Bureau of Economic Analysis)("Residential structures. .Investment in residential structures consists of new construction of permanent-site single-family and multi-family units, improvements (additions, alterations, and major structural replacements) to housing units, expenditures on manufactured homes, brokers’commissions on the sale of residential property, and net purchases of used structures from government agencies. Residential structures also include some types of equipment that are built into residential structures, such as heating and air-conditioning equipment." Glossary "R": Bureau of Economic Analysis)In several old posts, I have discussed the reasons why the recovery has been so slow over the past 9 years or so. One problem has been lower than normal business investment as a percentage of GDP. (see, e.g. Update On Portfolio Positioning And Management As Of 9/21/15 - South Gent | Seeking Alpha)++++++Trump Does Not Lie-The Media Lies About Trump: The GOP's Alternate Reality Bubble That is Impervious to Accurate Information: So far, Trump has told over 400 easily documented falsehoods since his inauguration. All of Trump’s false and misleading claims: the first 100 days - Washington PostNo President has lied more than Donald. No one has come close. He will set a record that will never be matched until the end of days. The record will most likely be a multiple of the combined total of all predecessors. Yet, a recent poll showed that 76% of Trump voters believe that Donald does not regularly make false statements. 59% of all adults, including 81% of Democrats and 62% of independents, believe that Trump regularly makes false statements. (Part 1 of Poll: President Trump is least popular president at 100-day mark - The Washington Post; a question in part 2 asked whether Donald is honest and 58% said no)80% of Trump voters think the bigger truth telling problem lies with the news media, meaning just about every news organization in the U.S. other than Fox and Friends, Brietbart, the National Inquirer, and Alex Jones' Infowars and a few personalities like Ann Coulter, Rush Limbaugh, and Sean Hannity who claim to be conservatives. Donald believes that the National Inquirer needs to be awarded many “Pulitzer Prizes for their reporting.”MSNBC100 Days of Whoppers - FactCheck.org++++++++++++++S & P 500's Gain Since 9/30/12 Mostly Due to Multiple Expansion: The following information is taken from data provided by Standard & Poor's (S &P)

2014 Third Quarter S & P 500 Actual GAAP and Non-GAAP Earnings: GAAP 29.6Non-GAAP 27.47S & P 500 at 1972.29 on 9/30/14Estimated 2017 First Quarter as of 4/20/17 (22.5% reporting)GAAP 26.41Non-GAAP 29.11S & P 500 Closed at 2,387.45 on 4/26/17S & P 500 has gained 21.05% as both GAAP and NON-GAAP earnings have declined.2012 Third Quarter Actual EarningsGAAP 24Non-GAAP 21.21S & P 500 Closed at 1440.67 on 9/28/12 (a Friday)From 9/28/12 through 4/26/17, the S & P 500 has gained 65.72% while GAAP earnings have increased 10%. S & P 500 P/E as 4/28/17TTM P/E Based on Reported GAAP Earnings = P/E 24.17Forward 12 months Non-GAAP Estimated "Operating Earnings" = P/E 18.42The last recession ended in June 2009: nber.org/cycles++++++++++BlackRock's Fink Says U.S. on Path to 'Exploding' Deficits - Bloomberg (worse than he thinks)The latest Trumpcare plan clearly throws those with pre-existing conditions under the bus, primarily in red states carried by the republicans, by giving states the right to opt out of the Obamacare requirement that those with pre-existing conditions can not be charged more than healthy insureds. Fears of losing pre-existing conditions protection under GOP - ABC NewsNew bill tests GOP promise on pre-existing conditions | TheHill;GOP Health Care: Republicans Aim to Keep Pre-existing Conditions-But Only For Themselves | MoneyOne inherent flaw in Obamacare, as Blue Cross of Tennessee found out when it lost over $500M in three years, is that there are not enough healthy persons in the plans to offset the high costs for those with illnesses. The pain for both insurance companies and insureds in Tennessee was aggravated since Tennessee did not adopt the Medicaid expansion, which caused those with illnesses, who would have been covered by the Medicaid expansion, to enroll in an Obamacare plan.Then there is the fairness issue to the healthy persons having to pay significantly higher premiums to offset the costs of providing those with pre-existing conditions at the same rate. If that system continued, then more healthy individuals would simply drop out due to premium increases and insurance companies would quit offering policies due to losses. Then the insurance pool would have an even higher sick to healthy people ratio and less options for coverage due to insurance companies dropping out. It is a system designed to fail, starting with the smaller states first.The only ways for Obamacare's pre-existing condition policy to work long term is to have a single payer system, where coverage extends to the entire population, or to have the state and federal governments footing all or most of the costs for those with significant illnesses above a certain average level. The single payer system is not going to happen in my lifetime. Perhaps, after the baby boom generation passes away, then something could be adopted along those lines.As I explained in a 2013 post, I would have voted against Obamacare as the wrong solution: Stocks, Bonds & Politics: Why I Would Have Voted Against Obamacare (scroll to end of post)The republican plan also prohibits insurance policies that cover for abortions. In several blue states, including California and New York, insurance companies are prohibited from excluding abortion coverage by state law and residents in those states would not be entitled to receive credits provided in TrumpDoesNotCare plan.Most California insurance plans could be ineligible for tax credits under the GOP's new proposal - LA Times; GOP health care plan would threaten 1M New Yorkers' insurance - NY Daily NewsA number of NY republicans intend on voting for this plan nonetheless including the reactionary Chris Collins, an early supporter of Donald Trump, who has found a way to stick it to NYC and other liberal Democratic bastions on Medicaid funding in the current GOP "healthcare" bill. Collins' Medicaid proposal prompts battle with governor - The Buffalo News+++++++++ 1. Intermediate Term Bond/CD Ladder Basket Strategy:

"From and including August 24, 2015 to but excluding September 15, 2025, distributions will accrue and be payable at a rate of 5.375% per annum, payable beginning on December 15, 2015 and ending on September 15, 2025. From and including September 15, 2025, distributions will accrue and be payable at a floating rate equal to the three-month LIBOR plus a spread of 3.132% per annum, payable beginning on December 15, 2025. ... At our option, at any time, or from time to time, on or after September 15, 2025, we may redeem the Series J Preference Shares, in whole or in part, at 100% of their liquidation preference, plus accrued and unpaid dividends, if any."ProspectusIn other words, this security pays a 5.375% coupon on a $25 par value until 9/15/25.

As is typical with U.S. fixed-to-floating rate preferred stocks, the issuer has the option to redeem starting on the expiration date of the fixed coupon period, so owners of this security may never see the 3.132% + the 3 month Libor rate as the coupon. If short term rates are too high, SCE may simply exercise its option to redeem at par rather than pay the floating rate.3. Continued to Pare Stock Allocation: A. Sold 100 WTBA at $23.12-Used Commission Free Trade:

I will not buy corporate bonds in my Schwab account since the minimum commission is $10. That leaves me with newly issued CDs and fixed coupon treasuries that can be bought commission free. A two corporate bond order would cost me five times the rate charged by Fidelity or IB.5. Pared Trade Generated by Boredom: Sold 50 ROBO at $33.11 and Bought 50 TDIV at $31.7: I am discussing this trade out of order. This transaction occurred yesterday. I am generally anywhere from 2 to 4 weeks behind discussing trades. I used commission free trades to buy and sell ROBO in my Schwab account. Those commission free trades expire in August.

I used a Fidelity commission free trade to buy 50 shares of TDIV which I view as a more conservative technology fund and the expense ratio is lower at .5%. In short, I am more comfortable with TDIV than ROBO.

Disclaimer: I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere.A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESSEach investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members

For thinly traded securities and GYC is certainly one of those, it is not unusual to receive multiple fill on a 50 share limit order.I discussed buying the remaining 50 share lot at $20.95, using a commission free trade, here.GYC Profits to Date: +$904.5 (prior tally at $810.59, all in small lots)The largest gain originated from a 50 share lot owned in a Roth IRA= +$336.97

In making this paired trade, I viewed GJP, relative to GYC, to be the better value as more fully explained below. The owners of GYC are entitled to receive quarterly interest payments at the greater of 3.25% or .65% over the 3 month Libor rate, with a 8% per annum cap, on a $25 par value. The underlying bond in the GYC Grantor Trust, which is a 2034 senior AT & T bond, and the trust certificate GYC mature on the same date which is June 15, 2034. If AT & T pays off those bonds then, and there is no mishap with GYC, the owners of GYC would receive their par value as well which is $25 per trust certificate.

ProspectusThe owners of GYC will receive a coupon increase when the 3 month Libor rate exceeds 2.6% during a quarterly computation date. At a total cost of $23.39 per share, the current yield at the minimum coupon rate would be about 3.47%. The owners of GJP are entitled to receive monthly interest payments at the greater of 3% or 1.15% over the U.S. 3 month T Bill rate on a $25 par value. This security has a maximum coupon of 8%. Prospectus The underlying security is a senior unsecured bond issued by Dominion Resources that matures in June 2035. Interest payments are made monthly. I discussed a GJP purchase in Item # # 4 here. That post provides more detail.The 3% minimum coupon is increased when the three month T. Bill rate exceeds 1.85%. At a total cost per share of $21.35, and assuming the minimum 3% minimum coupon, the current yield would be about 3.51%. Here are the Advantage of GJP Compared to GYC: 1. The current yield is similar but favors GJP slightly at $21.35 vs. GYC at $23.39. 2. GJP was bought at a greater discount to par value which provides more upside price potential prior to maturity and a greater YTM when held to maturity. 3. GJP's coupon increase will be triggered sooner than the one for GYB. The 3 month Libor rate will be higher than the 3 month treasury bill rate, but will probably not exceed the .5% spread differential in favor of GJP except for brief periods. And, the GJP has a lower threshold at 3% to trigger an increase in the coupon. I do not see the credit risk of the underlying bonds to be meaningfully different. Dominion Resources senior unsecured debt is rated Baa2 by Moody's and BBB by S & P: Bond Detail one notch higher at Baa1 and BBB+: Bond DetailAT &T's senior unsecured debt is currently rated Baa1 and BBB+. B. Sold 50 PYT at $20.94 (Used Commission Free Trade):

The preceding snapshot shows a gross dividend of $62.49. Out of that amount, I was charged an annual fee of $2.5 which is paid to the ADR custodian and $9.37 to France as a tax. That tax would be at a 15% rate (.15% x. $62.49 = $9.37). U.S. citizens are entitled to a 15% tax rate under the U.S tax treaty with France. If 30% is withheld, then the investor knows that their broker did not make a relief at source filing asserting U.S. citizenship on behalf of the investor. A failure to do so would be to place the investor in the class of persons from countries that have no tax treaty with France, more or less a stateless person.I was able to take all of my foreign dividend tax payments as a credit off my 2016 U.S. tax obligation. Life insurance stocks received a post-election lift based on a consensus opinion that yields and yield spreads would increase due to Trump's fiscal stimulus plans that included massive tax cuts and increased spending on defense and infrastructure. Those plans have bogged down and the treasury yield curve as started to flatten as intermediate term rates decline as short term rates rise. This reversal in trend has caused me to lighten up some on my insurance stocks.I have one prior round trip and that was in 2010. I held the position for 14 days.

The price shown in the foregoing snapshot is adjusted down by a $2 brokerage commission.Profit Snapshot: $1.88

I bought 2 Berkshire Hathaway 3.125% senior unsecured bonds maturing in 2026 in anticipation of selling the lower yielding 2019 bonds. The YTM for that bond at my total cost is 3.266%.The YTM for the 2019 bond at 100.255 is 1.582%. Bond DetailI am selling some low coupon bonds maturing in the 6/30/18 to 12/31/19 to buy higher yielding ones maturing in the 2023-2026 range. This is a slight nip and tuck where I am assuming more interest rate risk in exchange for more income.

Disclaimer: I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere.A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESSEach investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members.

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About Me

I am no longer in a capital accumulation phase. My key investment objectives are capital preservation and income generation.
I started to buy stocks in the late 1960s.
I have a balanced worldwide portfolio with a considerable allocation to cash. Starting in December 2016, I started to reallocate out of cash and into high quality short and intermediate term bonds and FDIC insured CDs using a ladder strategy.
I have been paring my stock allocation, selling gradually into the robust stock market rally occurring since the U.S. election.
In this blog, I will be discussing only a sample of my recent stock trades. I will be discussing almost all of my bond and CD trades.

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Disclaimer

I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this blog, I am acting solely as a financial journalist focusing on my own investments. The information contained in this blog is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this blog is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. For purchases of bonds and preferred stocks, the prospectuses need to be reviewed until fully understood by the investor.